Texas Oil & Gas Corp. v. Phillips Petroleum Company

• Decision Date: 02 April 1969
• Docket Number: No. 10059.,10059.
• Parties: TEXAS OIL & GAS CORP., a corporation, and John H. Hill, an individual, Appellants, v. PHILLIPS PETROLEUM COMPANY, a corporation, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

406 F.2d 1303 (1969)

TEXAS OIL & GAS CORP., a corporation, and John H. Hill, an individual, Appellants, v. PHILLIPS PETROLEUM COMPANY, a corporation, Appellee.

No. 10059.

United States Court of Appeals Tenth Circuit.

February 24, 1969.

Rehearing Denied April 2, 1969.

George L. Verity, Brown, Verity & Brown, Oklahoma City, Okl., for appellants.

Edward J. Fauss and Don L. Jemison, Oklahoma City, Okl. (Wm. J. Zeman and Lloyd Minter, Bartlesville, Okl., with them on the brief), for appellee.

Before MURRAH, Chief Judge, BREITENSTEIN and HILL, Circuit Judges.

PER CURIAM.

In this federal question suit, wholly between private parties, the appellants, oil and gas lessees of federal lands in Oklahoma, collaterally attack well spacing and forced pooling orders of the Oklahoma Corporation Commission insofar as they undertake to space and pool their federal leases. The effect of the spacing order is to establish a 640 acre spacing unit for the drilling and production of gas and gas condensates from a common source of supply. The spacing unit includes the federal oil and gas leases in question, along with privately owned and leased lands, a part of which is owned by the appellee Phillips Petroleum Company. The forced pooling order had the effect of pooling the spaced unit for the drilling of a permitted well by the lessee Phillips, the cost to be borne proportionately by the lessees in the unit. Any lessee electing not to participate in the permitted well was to be paid a lease bonus determined by the Oklahoma Corporation Commission to be $40.00 per acre. The assignors of the appellants elected not to participate and the title to their leases was transferred by operation of law to Phillips upon the payment of the prescribed lease bonus.

The appellants here succeeded to the rights of their predecessor after the election and transfer of title. They do not seek a review of the orders of the Corporation Commission nor of the administrative orders of the Bureau of Land Management which approved the transfer; rather, they collaterally attack only that portion of the Oklahoma Corporation's well spacing and pooling orders which purport to space the federal leases within the unit and to transfer the title of their leases to Phillips Petroleum Company upon their election not to participate in the drilling of the permitted well. They deny that either the Secretary of the Interior or any of his subordinates are necessary or proper parties to the litigation and say that the judgment sought will merely determine the rights of the parties to the suit. They agree that state law governs matters which concern only individuals but insist that the spacing order directly affects the interest of the United States and that as federal lessees they have standing to assert the federal interest, and that the federal court is empowered to grant the relief sought.

They concede the police power of a state over federal lands within its boundaries unless and until the federal government has asserted its constitutionally paramount power by appropriate statute and regulation. The contention here is simply that by statutes and regulations the federal government has effectively asserted its jurisdiction to regulate the exploration, development, and conservation of these federal lands for oil and gas; that federal jurisdiction having been asserted is exclusive, and consequently only the federal government has jurisdiction over these leases to space or communitize them for oil and gas; and that the state spacing and forced pooling orders are therefore void and invalid insofar as these leases are involved.

In an exhaustive opinion, the trial court recognized the paramount constitutional power and authority of the federal government over public lands, but took the view that the Constitution left to the Congress the determination of when and where and to what extent this power would be exercised.

Turning to the applicable Leasing Act of 1920 (41 Statute 437, 30 U.S.C. § 181 et seq.), and particularly to § 187, the court could find nothing in the statutes indicating a Congressional intent to assert exclusive control of federal lands leased for oil and gas development. Specific reference was made to that part of § 187 which provides that "none of such provisions shall be in conflict with the laws of the State in which the leased property is situated." Reference was also made to that part of § 189 of the Leasing Act, which provides:

Nothing in said section shall be construed or held to affect the rights of the States or other local authority to exercise any rights which they may have, including the right to levy and collect taxes upon improvements, output of mines, or other rights, property, or assets of any lessee of the United States.

Reference was then made to applicable federal case law to the effect that State law and the State police power extends over the federal public domain within its boundaries until preempted, and only to the extent preempted, by federal law. Thus in determining the extent to which its exclusive federal control is extended over public lands...